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How to invest in buy-to-let: where your

£100,000 will earn the highest returns
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By Melissa Lawford
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7 NOVEMBER 2019 • 7:00AM

D o you want to invest in buy-to-let – but don't know

how? In this four-part series, we find out where and how
to invest in property in the UK with different
budgets, from £15,000 to £100,000, and take a look at
how far your money can take you.

For the final installment in our series, we’re working with a budget of
£100,000. With this kind of money, 20 out of 34 London local authorities
are within reach, according to exclusive research by Hamptons
International.

But the property market here has slowed, and relative returns are lower.
So does £100,000 actually allow you to buy property that’s more
profitable than what you can get with £15,000?

Between July and September, rents in the most expensive areas of

London were up by 5.2 per cent year on year, according to LonRes’s prime
lettings index. Combined with lower sale prices, this means that yields are
now at their highest level since the beginning of 2013. The central
London market is looking up for landlords – and even better returns can
be found on the outskirts of the city.

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What gets really interesting about working with this budget is that allows
you scope for a change of tactic: the sum of £100,000 opens up not just
geographic areas but different types of property and ways of buying.

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You have enough money now to seriously invest in houses in multiple

occupation (HMOs) - the most profitable form of buy-to-let property in
the country, according to the National Landlords Association.

And you have a fast-track to building a portfolio in the parts of the

country where returns are highest. Though, if you're savvy, you'd be able
to start here with a £15,000 budget too.

Methodology | Where to invest in buy-to-let property

The findings were based on Hamptons International’s analysis of Land Registry
data.
For each local authority, we looked at average prices for properties in four
categories: flats, terraced, semi-detached and detached houses.
We calculated the cost of a 25 per cent deposit (the industry standard for buy-to-let
mortgages) for each.
Then, we rated the local authorities by their average rental yields.

Buy-to-let in London
The east London borough of Barking and Dagenham has the highest
returns in the capital, according to Hamptons, with yields of 5.5 per cent.

A 25 per cent deposit on an average flat here will set you back £57,350,
and for a terraced house the cost would be £80,490. Semi-detached
properties technically come into budget with deposits of £95,500, but
you’ll have to factor in a £20,560 stamp duty bill to boot.

Barking is benefiting from rising rents in more central areas such as

Stratford, says Matthew Cann of agent Bairstow Eves. Homes within a
five-minute walk of the station are most in demand.

Investors are also eyeing up Barking Riverside, a scheme with plans for a
total of 10,800 homes that will include a new Overground station (due to
open in 2021). Yields here can hit six per cent, says Cann, though that’s
before shelling out the development's higher management fees.

The regeneration here has sparked international interest. Cann estimates

that 40 per cent of investors are from overseas, up from 10 per cent four
years ago. Half of these international buy-to-let buyers are Chinese, he
adds.

After Barking and Dagenham, there are four local authorities that offer
five per cent yields: Newham, where a 25 per cent flat deposit will set you
back £86,320, Enfield (£71,650), Bexley (£58,700), and Havering, where
homes are cheapest. Deposits here cost £57,850 for flats and £85,020 for
terraced houses (though £17,207 in stamp duty will push you just over
budget).

Within Havering, yields can edge up half a per cent in the suburban areas
of Rainham, Harold Hill and certain parts of Collier Row, where house
prices are lower, says Linval Williams of Andrews Estate Agents.

How to | Invest in buy-to-let

Where your £15,000 will How to invest £25,000 in

earn the highest returns property

The best places to invest Three ways to get higher

£50,000 in the rental sector rental yields from £100,000

Investing in HMOs
HMOs are properties with at least three tenants who form more than one
household (if tenants are married, in a relationship or related they count
as one household). HMOs with two or more separate households, or five
or more tenants, need a license from the local council. This will certify
that the property fulfills requirements such as minimum bedroom sizes.

For many landlords, it's worth it. Across the country, HMOs generate
average rental yields of 6.5 per cent, compared to a 5.6 per cent average
return for terraced houses, according to the NLA.

But they make up a relatively small proportion of the market: NLA

statistics show while terraced houses account for 59 per cent of Britain’s
rental stock, HMOs make up only 20 per cent. It’s a sector that previously
“had such a bad reputation,” says Tom Wolfe of HMO Advice. But with co-
living on the rise, times are changing and there’s space for the sector to
grow.

In Chelmsford, Essex, investing in HMO property means boosting returns

from five per cent for standard lettings, to returns at “nine per cent plus,”
says Neil Baldock of Charles David Casson estate agency.

Here, a 25 per cent flat deposit costs £53,080 and terraced houses are
£72,070 (a total of £85,132 with stamp duty), according to Hamptons.
Parklands Drive and St Fabian’s Drive are particular hotspots for HMO
stocks, says Baldock. He advises buying within a mile radius of the city
centre - these tenants are sociable and want transport and amenities.

HMO properties work best for young professionals, which means

“London is always going to be the powerhouse of this sector,” says Wolfe.

In the capital, good HMO properties can achieve yields of 6.5 per cent,
compared to the city’s standard yield of 3.5 per cent, says Christopher
Florence, also of HMO Advice. The company is currently working with a
12-bedroom property in Ealing that has yields of 14 to 15 per cent.

Wolfe and Florence recommend buying large houses with nearby

transport links, either in Ealing or “anywhere south”, such as Clapham
and Putney. In general, more bedrooms mean more profit, but Wolfe
cautions that the social aspect of HMO living is key. Homes with six
bedrooms are the sweet spot, he adds.

Converting an old property to qualify for an HMO licence can be “costly

and complex”, says Simon Gerrard of Martyn Gerrard estate agents. HMO
license criteria can vary significantly between local authorities and
“many councils are having an aggressive crackdown.”

New build property will be compliant with HMO regulation, says Gerrard
– though of course, this comes at a premium.

Should you buy one property or start a portfolio?

With a budget of £100,000 to play with, you could buy one expensive
property, or pick up a few. So which makes the most financial sense?

In Sunderland, north-east England, yields are 9.7 per cent and a 25 per
cent flat deposit costs £18,940, according to Hamptons. Four flat deposits,
plus stamp duty, will come to £84,852; you’ll even have budget left over
to renovate.

In Redcar and Cleveland, near Middlesbrough, you can get even more for
your money. Yields here are 9.6 per cent, according to Hamptons, and a
flat deposit will cost £15,390. You could buy five plus tax for £86,180.

Max Armstrong, director of North East Property Investments,

recommends using a £100,000 budget to start a portfolio by buying two
properties in cash as a limited company. He advises doing the
refurbishments and getting a history of rentals first, then
refinancing after six months and investing again to keep building the
portfolio.

Buying through a limited company means that the investor qualifies for
the tax benefits that landlords enjoyed before the 2017 changes that began
phased reductions in tax relief on buy-to-let mortgages: mortgage costs
still count as deductible business expenses. Also, rental profits on
properties owned by limited companies are taxed at corporation tax rates
rather than personal income tax rates. The downside is that creating a
new company means buying without a financial history, and mortgage
costs are higher. Structuring the purchase in the above format is the
closest thing to the best of both worlds. (Though it's worth noting that if
you later make a profit on the sale of the properties, you will have no
capital gains tax allowance).

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Buying around main cities and towns such as Sunderland and Newcastle
is safest, adds Armstrong, and properties here will hold their value better.

Yields of 15 to 16 per cent can be found in the lower value properties in the
east coast pit villages between Sunderland and Middlesbrough, says
Armstrong, but these areas have a high density of housing benefit
tenants, which means a higher degree of risk. This can be offset by
leasing properties on long term three to five year contracts to housing
providers, which then manage the properties themselves and sublet
them.

The North East is a becoming hotspot for big money. Armstrong estimates
that 85 per cent of his clients come from outside the area, primarily from
London and the South East. International buyers from the Middle East
who would previously have invested in the capital are also increasingly
starting to look north, he adds.

Related Topics

House prices UK property Buy to let Stamp duty How to invest in buy-to-let

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